The African Development Bank (AfDB) has issued a cautionary statement, revealing that 25 countries in Africa are currently facing a high risk of either high-debt distress or in-debt distress.
Akinwumi Adesina, the President of the AfDB Group, cited the rising cost of debt servicing as the primary factor behind this concerning situation.
In a recent address, Adesina emphasized that African markets have borne the brunt of strict monetary policies implemented in the United States and Europe.
These policies have had a profound impact on interest rates, leading to a surge in the cost of debt servicing. The AfDB has further warned that Africa's external debt could increase from $1.1 trillion to $1.13 trillion.
Adesina elaborated on the consequences of this escalating debt burden, stating, "As a result, the external debt service payments due for 16 African countries will rise from $21.2 billion (equivalent to Sh3 trillion) in 2022 to $22.3 billion (equivalent to Sh3.1 trillion) in 2023."
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Among the African nations grappling with the issue, Kenya stands out, ranking third in terms of government debt to gross domestic product (GDP).
The country's debt-to-GDP ratio currently stands at 64.8 per cent, amounting to Sh9.4 trillion, as revealed by the National Treasury.
This figure comprises Sh4.7 trillion in domestic debt and Sh4.6 trillion in external debt.
The exponential growth of continental loan obligations can be attributed to the adversities caused by the COVID-19 pandemic.
Additionally, the tightening of spending cultures within these countries has had a negative impact, resulting in downgrades.
Furthermore, the soaring costs of energy and food prices resulting from the Russian-Ukraine war, combined with the expenses associated with adapting to climate change, have compounded these challenges.
Highlighting the disparity in interest rates on debts, the AfDB disclosed that multilateral debts stand at 1 per cent, while bilateral debts are slightly higher at 1.2 per cent.
Moreover, there has been a significant difference in the tenure of these debts among creditors.
Adesina remarked, "While the maturity of official debt averaged 30 years for 62 per cent of the debt, the tenor for bonds has averaged 10 years. Thus, we now have a more short-term debt with higher interest rates."
The AfDB's warning serves as a wake-up call for African nations to take decisive action to address their rising debt burdens and work towards sustainable economic strategies.
The adverse effects of high-debt distress can hinder development efforts, exacerbate poverty, and impede progress in various sectors.
As African countries navigate these challenging times, it is imperative that governments and financial institutions collaborate to find innovative solutions and establish policies that foster economic stability and growth.
The AfDB and other stakeholders will undoubtedly play a pivotal role in supporting these nations in their quest for sustainable development and debt management.
